Are Amazon Coins Just Another App Currency, Or the Next Big Thing?

Earlier this month, Amazon announced that it will introduce Amazon Coins, a new digital currency for its Kindle Fire Appstore. Thus far, the shopping behemoth only intends for the coins to be used by U.S. customers to purchase apps on the Kindle Fire. Whether you actually use the currency, however, is entirely up to you.

Amazon hopes to whet the appetites of wavering shoppers though by initially "giving out tens of millions of dollars worth of Coins to customers to spend on Kindle Fire apps, games, or in-app items," according to a press release. That obviously sounds appealing (free money always does!), but should you bite?

Pitfalls to Digital Currency Systems

The Amazon Coins announcement raised some eyebrows, given the current state of such proprietary currency systems. According to Popular Science, Amazon Coins joins the ranks of "other virtual currency minting operations," such as Bitcoin, Second Life's Linden Dollar, Facebook Credits, Microsoft Points, and Nintendo Points. The publication points out, however, that although some of these invented currencies were pinned to the dollar, they "had bizarre exchange rates," which lead to customer confusion.

The Amazon Coins FAQ suggests that the merchant wants to sidestep any exchange rate complaints, stating that "One Amazon Coin is worth one cent, so if an app costs $2.99 it will cost 299 Amazon Coins." Even the apparent simplicity of this exchange rate could be misleading, though. It's easier to go overboard with spending when you use a digital currency, because it doesn't feel like you're using "real money."

Moreover, according to Forbes, "People buying Coins are unlikely to spend all the Coins in one transaction. Which leaves Amazon with a nice cash pile of purchased but unspent Coins. It might not start out large, but if Coins becomes established, with millions of users, expect Amazon to work this reserve for their benefit."

Furthermore, at the moment, Amazon Coins cannot be redeemed for dollars. The Coins will act like store credit in the Kindle Fire Appstore. "My biggest concern is that Amazon Coins are a way to suck me and my money into the Amazon financial ecosystem and to make it hard for me and my money to leave," read a CNET article. "Anytime somebody tries to persuade you to use their own special form of money, ask yourself why it's worth sacrificing the flexibility of real-world currency."

Who Benefits Most from Amazon Coins?

One group that should be excited about the creation of Amazon Coins is Kindle Fire app developers. Amazon's press release promises developers that the currency won't negatively affect their bottom line: "There's no integration required — you'll get paid the same 70% revenue share whether the customer chooses to use Coins or their own money."

When Amazon gives away its Coins in May, app developers can expect an influx of Kindle Fire users ready to spend the "free money." Plus, this will greatly incentivize customers to spend more time in the Kindle Fire Appstore, possible driving business away from Amazon's main app competitor, Google Play. (Kindle Fire tablets use a heavily modified version of Google's Android OS.) In fact, it's speculated that this is the driving motivation for the entire coins scheme in the first place.

What to Expect from Amazon Coins in the Future

The biggest question is whether Amazon Coins will remain limited to the Kindle Fire Appstore, or if the mega-retailer will eventually allow the currency to be used on its main site. "The narrowness in scope is purely a decision," said Indiana University Associate Professor Edward Castanova, according to Upstart Business Journal. "If they're going to do this in this narrow area, they have the technology and the functionality to do it for everything."

If Amazon Coins become popular with Kindle Fire customers, the potential profit for this new currency could be almost limitless, given Amazon's huge online presence.

Readers, what do you think about Amazon Coins? Are they just another gimmick, out to separate you from your dollars? Or are you excited about the prospect of (initially) free money? Developers, are you more tempted to create Kindle Fire apps? Sound off in the comments below!

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3 comments

I think this is a way for Amazon to control the costs associated with credit card processing fees. Purchasing a $1 item costs an inquiry fee of .20 to .35, plus a percentage of the transaction based on credit card company, amount of transaction, and it was swiped or not. Buying $10 of coins would cost Amazon .40 cents vs. someone buying 10 $1 apps, which would cost them $2.20 in fees. It is a no-brainer for Amazon, but they need to spread the savings around a bit. If they want customers to be happy they need to make the price of the app less if paying in coins. It can't be a complete savings of swipe fees, because now Amazon needs to administer, support, and deal with fraud in this program and should be compensated for it. I'd be happy with a .10 savings on a .99 cent app - essentially splitting the difference in savings between Amazon and me, and I'd buy them in increments of $10.

Amazon already pays up to 3-percent cash back to preferred credit card holders — on all categories of purchases. The accrued credits can be applied to Amazon purchases or redeemed for cash, in $25 increments. This arrangement gives Amazon customers a great deal of flex in how they spend these reward points, so I'm interested in seeing if Amazon intends to screw-down the loose edges on their rewards ecosystem, by supplanting/replacing "Rewards" points with these far-more restrictive "Amazon Coins..."